By Barnard R. Thompson

The Mexican Supreme Court, on January 22, 2007 reached its long awaited judgment on Mexico’s federal gaming and raffles (or drawings) regulation.  Ruling on a constitutionality challenge filed by the Chamber of Deputies in late 2004, against the Regulation of the Federal Gaming and Raffles Law that was decreed in September of that same year by then President Vicente Fox, the 11-member Court resolved that the actions and promulgation were not unconstitutional.

A decision that, while anticipated still had to be made officially, will now allow permit holders to speedup from a somewhat slow pace to leaps and bounds in the development of a burgeoning gaming industry in Mexico.

Las Vegas, Montreal or Monaco type casinos are still not in the short-term cards however, although what the Court has substantiated might be called casinos lite.  “Remote betting centers” — books for betting on offsite activities, as well as parlors for numbers games on “electronic terminals” as the bingo-based machines are euphemistically called in permits that were issued or updated in 2005, and now further legitimized.

Numbers games played on video screens that look almost the same as today’s slot machines, that according to one pundit give “bingo halls the look and feel of casinos.”

In 1934, President Lázaro Cárdenas banned casino gambling in Mexico (with certain event and/or fair and festival related exceptions).  Yet gaming activities continued (at times in clandestine casinos), to the degree that in 1947 the government of President Miguel Alemán promulgated the “Federal Gaming and Raffles Law,” still excepting casinos, in order to establish federally regulated controls and a future tax stream for the government.

And since then the Law has never been amended nor reformed.

Efforts to reform the Federal Gaming and Raffles Law of 1947 heated up in the early 1990s, with the specific goal of reauthorizing casinos, however for a variety of sociopolitical reasons the efforts were never successful.  Actually proposed reform legislation is still in the Chamber of Deputies, the proposed Federal Gaming with Wagers and Raffles Law (2004), although it is buried in committee.  An initiative that includes casinos and the expansion of related gaming activities, but drafted in such a way that the casino chapters and interconnected entries could be excised to leave a sans casino bill.

While the Federal Gaming and Raffles Law of 1947 was not directly before the Mexican Supreme Court during the January hearing, it of course was discussed insofar as a regulation is governed by, and secondary to, the law it comes under.  And one of the contradictory points in the out-of-date gaming law noted by the justices is that Article 2, Items I and II, states only chess, checkers, and similar games; dominoes, dice and bowling; all ball games; foot races and animal races; sports; and raffles or drawings are allowed.  The article concludes, “The games not specified will be deemed as prohibited as to the validity of this Law.”

But then the Law goes on to allow exceptions, in Article 3 giving the executive branch of government, through the Secretariat of Government, authority to authorize, regulate, control, and oversee gaming when wagers are placed.

Based on these exceptions and a number of other factors, the Supreme Court ruled the Regulation to be legal and in effect, and it found that President Fox and his administration acted according to law in 2004.  As well, and by extension, this means that the permits issued in 2005, in accordance with the Regulation, are valid.

Before continuing, it should be noted that during the four daily sessions when the Court debated this matter, different justices mentioned that the 1947 Law is virtually archaic.  And in the end, while making every effort to the politically cautious and correct, the Court sent a clear message to the Chamber of Deputies that the Law itself must be reformed and modernized.

The Regulation of 2004 was claimed by many opposition party members in the 2003 to 2006 Congress to be an end run by Fox, to allow casino-type gaming since that legislation was bogged down.  Too, based on political partisanship they were irked that Fox had supposedly overstepped his bounds of responsibility by decreeing the Regulation, crossing into a legislative branch area of authority.

Moreover, they argued that some aspects of the Regulation were in violation of the governing Law and thus unconstitutional.  One of which was — is — a hugely important loophole, a gap the Supreme Court did not plug.

A loophole that those with differing authorization gaming permits — real and alleged — immediately began to exploit in late 2004 as they expanded their businesses.

Article 9 of the Regulation of the Federal Gaming and Raffles Law states, among other things, that “Slot machines, in any of their models, will not be subject to authorization.”  In other words, using some interesting legal legerdemain, electronic terminals that are not among the games authorized in the Law, according to the Regulation, are not subject to the Law.

In 2005, as Mexico’s 2006 election year neared and with politics heated up by a leftwing populist who at the time was seen as a shoo-in for the presidency, gaming was suddenly thrust into the political limelight.  This when the Secretary of Government, Santiago Creel, authorized issuance of seven master permits, three tied to permits already in effect and four new authorizations.  In all, the permits allow a total of 176 foreign book establishments, and 206 bingo-type numbers parlors.

Expecting to become the presidential candidate of the National Action Party (PAN), with backers that reportedly included Fox, Creel resigned as Mexico’s powerful Secretary of Government to campaign for the nomination (unsuccessfully) on June 1, 2005.  And it was just before he resigned that the new and renewed permits were officially granted.

A firestorm of criticism and condemnation was quickly ignited with news of the gaming permits, and not just among those who questioned their legality or oppose gaming.  A major portion of the fuel to the fire was political — and connected with the 2006 presidential election.

Perhaps the biggest news regarding the permits themselves was that one recipient was a newly formed company named Apuestas Internacionales, S. A. de C. V., which is owned by Televisa, Mexico’s giant broadcasting and communications conglomerate and the largest media company in the Spanish-speaking world.

Apuestas Internacionales was awarded 65 book permits and 65 numbers parlor permits, for operations in 29 of Mexico’s 32 federal entities (excepting only the states of Baja California Sur, Campeche and Colima).  The date of authorization was May 25, 2005, and the permits are good for 25 years (after which they can be renewed).

The cacophony mainly over the permits given to the Televisa affiliate included accusations that Creel issued the gaming allowances in exchange for a sweetheart advertising time deal, with rates from Televisa undercutting everyone else for both his PAN nomination campaign and subsequent 2006 presidential electioneering.  And in the end, whether Creel was guilty of the allegations or not, the gaming permit issue probably contributed to his loss of the PAN nomination to Felipe Calderón.

As a result of the 2006 Mexican elections, a relatively untarnished Creel gained a Mexican Senate seat not by standing for popular vote, but by having been placed high up on the PAN’s proportional representation list.  Today he chairs the PAN faction in the Senate.

Getting back for a moment to the Supreme Court decision in favor of the Regulation, the 2005 permits included a curiously worded provisional requirement clause.  It noted that a challenge of constitutionality by the Chamber of Deputies, regarding the 2004 published Regulation of the Federal Gaming and Raffles Law, was before the Court — but there was no further elaboration.  And this caused many to question what would happen with the permits if the Supreme Court ruled the Regulation unconstitutional?  A point that might have caused some permit holders to delay their plans and developments, but one that is no longer relevant as a result of the Court’s ruling.

Apuestas Internacionales, Televisa, along with certain other new and preexisting permit holders such as Jorge Hank Rhon, of the so-called Caliente group (who holds permits under a variety of names), didn’t hesitate however.  In fact, Apuestas Internacionales had several of its Play City establishments up and running well before the Supreme Court ruled, whereas the Caliente group opened several added books.  And there are others.

But Apuestas Internacionales and its Play City operations, based on the power and influence of Televisa and the fact that it is one of the few publicly traded permit holders, are the easiest to track.

Actually Apuestas Internacionales won an important concession from the Supreme Court even before the final decisions were made, one that should be a real moneymaker on top of the Play City sites.  On the second day of debate the Court found that “instantaneous lottery” tickets — scratch off tickets — are constitutional, although the justices noted there is a trademark registry conflict with Mexico’s National Lottery regarding use of the word “instantaneous” on tickets.

Wording aside, the Court ruled that the Secretariat of Government is authorized to grant and regulate permits for scratch off lottery tickets, popularly known as “raspaditos” or “lotería instantánea.”  The Court also ruled that the permits could be issued to qualifying private sector applicants, as this gaming activity is not the exclusive purview of the government owned National Lottery.

Merrill Lynch reported recently that Televisa has signed an agreement with the FEMSA (Coca Cola, beer) subsidiary OXXO, Mexico’s largest chain of convenience stores, to place scratch off lottery ticket terminals in OXXO’s nearly 4,500 stores nationwide.  And of course there will be other such arrangements for additional ticket dispenser locations.

Televisa will also link its new lottery business to its television shows, with the hope of luring millions of viewers to games by offering cash and other prizes, said Reuters.  “The games could be in the form of phone-in TV quizzes or scratch cards with questions on TV shows.”

Presently there are four Play City parlors operating in Mexico City and one in the nearby state of Puebla, with five more scheduled to open this year (with an average of 200 electronic terminals per establishment).  Actually the five Play City sites are using ten of Apuestas Internacionales total of 130 permits, with each of the five establishments using one for books and one for numbers.

Gaming activities currently offered at the upscale Play City facilities include numbers (bingo) machines, some other electronic terminals and sports wagering.  The latter book betting includes not just dog and horseracing, but too national sports, soccer internationally, and professional sports mainly in the United States.

As to income, Reuters reported on February 5 that, “Analysts estimated Televisa’s gaming business could generate between $175 million and $216 million this year, equivalent to 5 percent of total revenues.”  Considering the high growth potential of the gaming industry in Mexico, overall this market could reach a value equivalent to 3.5 percent of GNP once it is completely developed, according to the Merrill Lynch report.

One area of Televisa involvement that is causing concern in Mexico, as the conglomerate becomes involved in book betting, is soccer (“fútbol” in Spanish).  Televisa owns three of the 18 teams in Mexico’s First Division soccer league, plus it has broadcasting contracts with ten other Mexican Soccer Federation teams.  As well, it has a monopoly on soccer broadcasts via pay TV, this as summed up in the weekly magazine Proceso (September 17, 2006) that concluded: “And if this were not enough, some three months ago [Televisa] began the system of betting on First Division games through its Play City company.”

The concern of course is that some kind of wrongdoing could be done, funny business that has happened in other countries or that there will be a lack of transparency.  Observers point out that the Mexican Soccer Federation must avoid any and all irregularities or semblances of impropriety, while adhering to the rules and regulations of FIFA, the governing organization of international soccer.

The Play City setup for sports betting is the same as in books operated by the Caliente group, the Inter-American Entertainment Corporation (CIE), and other permit holders that may be open for business.  And these companies, that received new, updated or amended permits in 2005 thanks to Creel, now have numbers machines or at least authority for their installation and operation.

(It should also be noted that Play City, Caliente and some others — like “bwin,” owned by Raúl Quintana Fernández, a former Televisa official and ex-president of the National Teams Commission of the Mexican Soccer Federation — are today active on the Internet.)

The Caliente group, owned by Tijuana Mayor Jorge Hank Rhon, is the largest gaming enterprise in Mexico.  Hank Rhon is the son of Carlos Hank González, “The Professor,” one of the most influential and wealthiest politicians in all of Mexico up until his death in 2001.

In 1973 the Secretariat of Government issued permits to the Caliente Betting (or Bookmaking) Operator, which controlled four books under the same name.  Those permits were subsequently expanded to include Tijuana’s rebuilt Agua Caliente Racetrack (that had burned to the ground in 1971) and its 21-offsite betting operations.  And the permits ultimately passed into the hands of Hank Rhon, or Hank, who by 1991 had increased the number of remote betting sites to 77 establishments in 19 states.

Of the different gaming facilities in operation throughout Mexico today, Hank owns over one-half.  He has 80 books and 43 numbers parlors up and running that he operates like franchises, with government permits issued to eight different corporations.  The majority of Hank’s permits were issued in the early 1990’s, during the Carlos Salinas de Gortari administration — and while his father was still alive, for durations of 25 years.  Yet as a beneficiary of the permit allowances granted in 2005, Hank has since opened several new operations.

In 2004 the multimillionaire Hank ran for the three-year municipal presidency of Tijuana, the mayoral seat, and he won — with considerable help from his fortune.  Flamboyant, eccentric and controversial, while Hank became the darling victor of his old school Institutional Revolutionary Party (PRI) supporters, many others continue to see him not as a visionary leader but as a wrongdoer, although on no occasion has he been convicted of charges he has always been quick to deny.

At the end of January Hank successfully won the PRI pre-candidacy to become his party’s gubernatorial candidate for the state of Baja California in elections scheduled for August 5 of this year.  And even though the PAN has governed Baja California since 1989, at this time it would appear that Hank has a real chance of winning the six-year governorship.

There are a number of other current permit holders, such as the aforementioned CIE and its affiliate Mexican Administrator of Racetracks, that operate sports books and numbers parlors called Yaks.  Among this corporation’s different enterprises, it also operates Mexico City’s Racetrack of the Americas.  The Supreme Court, during its recent deliberations, ruled that horse races, held during seasonal meetings, are constitutional.

Daniel Olivares, a long time opponent of gaming who heads the Say No to Casinos organization, labeled the main Supreme Court decision an “incredible legal aberration” and “comedy” of votes by the justices.  Pointing as he usually does to the fear and devastation of compulsive gambling, Olivares went on to say that with this decision the Court “awarded those who break the law,” apparently referring to previous claims when he has said that the new permits are illegal as they do not comply with the 1947 Law.

Olivares also said that the Court, with its decision, “rewards those who, while violating the law, have installed de facto casinos with incessant games, and also rewarded the corrupt officials who have issued permits illegally, without considering the terribly harmful effects betting parlors create in society.”  Olivares went on, “[the justices] have favored Televisa, since television now has the possibility of converting every home into a casino.”

The fact is that while Olivares may have been overdramatic about in-home gambling, the Supreme Court decision could be a bellwether to future casinos.  This with the call for the Federal Gaming and Raffles Law of 1947 to be reformed, and considering Mexico’s need for development, growth, jobs and revenue.  Conversely, the casino debate has been going on for more than a decade.

President Felipe Calderón has already promised to stimulate Mexico’s important tourism industry and its development, this in connection and coordination with his priorities to strengthen business and labor competitiveness in order to attract investment and create jobs.  Which should in turn not only reduce poverty, but too hopefully end undesirable emigration.

The Mexico Tourism Board recently reported that 22 million tourists visited Mexico in 2005, whereas Mexico’s Secretary of Tourism, Rodolfo Elizondo, noted that an estimated $12 billion were spent in Mexico by tourists in 2006.  Elizondo is one of those who have campaigned in favor of casinos in the past, both as a federal deputy and as a senator, believing that casinos will bring yet more visitors and foreign exchange to the United Mexican States.